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Stronger Output and Activity for Irish Construction Sector but Challenges in Housing Remain

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Stronger Output and Activity for Irish Construction Sector but Challenges in Housing Remain

Stronger Output and Activity for Irish Construction Sector but Challenges in Housing Remain
June 14
10:00 2022
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The construction industry in Ireland commenced 2022 on a solid footing, supported by a strong economy, a buoyant labour market and a remarkably resilient public sector balance sheet, according to EY Economic Advisory’s report on Irish construction prospects prepared for Euroconstruct. Despite the ensuing macro-economic and geo-political pressures that have led to a sharp rise in construction materials, the report outlook for the sector as a whole is cautiously optimistic with output projections remaining strong for the next three years.

Construction volumes are projected to increase by 4.9% in 2022, followed by further growth of 4.1% in 2023. This growth is expected despite construction inflation which is projected at 10% on average in 2022 and 6% in 2023. Preliminary projections for 2024 are for an increase in construction output volumes of 5.4% in 2024, after a moderation in inflation to 4%.

The above projections generate a value for construction output of €29.1bn in 2022 versus €25.2bn in 2021. The volume of construction activity in 2023 and 2024 is projected at €27.5bn and €29bn respectively[1]. In nominal terms, the value of construction output is projected at €35.2bn in 2024, which would correspond to 6.7% of GDP, compared with 6.2% of GDP in 2022.

Annette Hughes, Director at EY Economic Advisory.

Commenting on the report, Annette Hughes, Director at EY Economic Advisory, said: “Following subdued construction activity in 2020 and 2021 due to the pandemic, the industry commenced the year with cautious optimism and much work to be done. Recovery has however been varied across sectors and is set against a challenging market backdrop related to inflation and supply chain issues. The excessive price rises experienced in 2022 thus far are putting a strain on, for example, the cost of delivering some of the infrastructure projects in the NDP, as capital budgets for the year are already determined.”

Housing Outlook

Housing remains a core political, economic and social issue. The existing challenges in the market are gathering momentum, despite the announcement of a range of government schemes and subsidies to support housing supply, affordability and viability as well as the largest planned housing investment programme ever in the State under the Housing for All (HfA) Plan. Combined with the added demand from the influx of Ukrainians displaced by the conflict, the current confluence of factors is creating a very challenging housing market.

For 2022 the report forecasts 25,000 completions, up from the out-turn of 20,473 in 2021. There has been a downward revision of the housing supply projections for 2023 and 2024, with completions forecast at 27,000 in 2023 and 32,000 in 2024. These projections are below the Housing for All targets of 29,000 and 33,450 respectively and reflect a combination of factors, including delays with respect to planning, the servicing of lands, the longer delivery time due to an increase in the number of apartments as well as the escalation in building costs, which is impacting the viability of some schemes.

Annette Hughes said: “Although recent data show a substantial increase in the number of units granted planning permission – almost 43,000 in 2021 of which 60% were for apartments – there are constraints on the supply side in converting these permissions to completed units, such as a lack of services and other infrastructure to enable development.”

The report also notes concerns over the capacity of the construction industry to deliver the unprecedented scale of public capital investment planned, which is projected at €35.4bn over the three years from 2022-2024. The availability of skilled labour is an additional challenge given competing demands from the new build and retrofitting sectors. In the non-residential sector, the report notes that almost 12 million square metres of new non-residential buildings were granted planning in the last five years. The main concern in the current environment is whether these permissions will progress due to the downside risks for projects around building cost inflation and supply chain disruptions.

The industry is working hard to adopt more modern methods of construction to boost productivity and delivery times. The announcement regarding the establishment of a Construction Technology Centre earlier this year to look at construction research, development and innovation in the built environment, and identify technology opportunities should enable construction firms to build at a lower cost and higher speed and with greater energy efficiency.

Annette Hughes concluded: “The size of the housing challenge cannot be overlooked but Ireland does have the potential to tackle the supply issue. A number of public and private affordable housing schemes are to be introduced to address affordability while one of the four pillars in the Housing for All plan is focused on increasing supply – including a number of schemes designed to activate zoned lands and existing planning permissions – which will be essential in addressing the issue head on. There are also a number of subsidies and grants designed to unlock the potential in the market. This multi-pronged approach should be welcomed and with ongoing input from both industry and government, it will hopefully make it possible to expedite delivery and deliver much needed supply.

[1] All volume figures are based on 2021 prices

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